You'll Become a Millionaire -- Here's When

Could you become a millionaire? Probably. The trick is figuring out just how to get from where you are now to that point.

A bunch of factors influence how you'll get there:

• How much you have invested already.
• How much you can save and invest each year.
• What average annual return you expect to earn.

Let's see how these factors can work for you, supposing you're 40 years old with a $50,000 nest egg:

These reasonable inputs would let you achieve millionaire-hood within about 20 to 30 years, depending on how quickly your money grows, and how much you manage to save and invest.

You might already know that the stock market's longtime average return is about 10% per year. But remember, that's a very long-term average -- stocks could average 8%, 12%, or something else entirely during the 20, 30, or 40 years that you invest. And that's not the only complication the market could toss your way.

Before you start seeing dollar signs ...
As we've seen over the past year or two, even stocks considered the safest blue chips can have widely differing performances over short or long stretches of time. Check out how some companies in the Dow 20 years ago have fared since then:

Source: Yahoo! Finance.

Your best path to a million bucks
You can get to a million faster by saving and investing more, and by picking the right stocks to generate higher returns. And you'll stand a chance of compounding at higher rates if you invest in stocks with the healthiest growth rates.

Smaller companies are generally one good area to start looking for strong growers. After all, it's easier to double your revenue from $50 million to $100 million than from $50 billion to $100 billion. To an extent, the outsized returns in the table above reflect companies that were much younger and smaller 20 years ago.

Not only do small caps outperform their larger peers overall, but according to data compiled by my Foolish colleague Tim Hanson, all of the past decade's best performers were small, most with capitalizations less than $100 million. Check out the 10-year average returns of some of them:

Data from Morningstar.com and Capital IQ, a division of Standard & Poor's.

Compare those puny market caps with those of today's blue chips -- IBM's, for example, tops $150 billion, while American Express' is over $30 billion. Which kinds of companies do you think stand the better chance of growing quickly?

It's critical to choose your stocks well, and to keep up with your holdings, making sure you're devoting money to your best ideas. It's also critical to start soon. The more time your money has to grow, the sooner you'll reach a million.

If you're looking for small companies with lots of room to grow, try our Motley Fool Hidden Gems newsletter absolutely free. Even in this crummy economy, its recommendations have been outperforming the market. You can access all our past issues and recommendations with a 30-day guest pass.

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This article was originally published on June 15, 2009. It has been updated.

Longtime Fool contributor Selena Maranjian owns shares of American Express. Green Mountain Coffee Roasters and Hansen Natural are Motley Fool Rule Breakers selections. American Express is a Motley Fool Inside Value recommendation. The Fool owns shares of American Express. The Motley Fool is Fools writing for Fools.